Daydreaming reform: basic income, money and work ethic

To say we face an economic crisis is hardly controversial but the crisis is so severe that the reforms needed make Karl Marx look a part of the establishment.   The changes needed are radical beyond the comprehension of many people as they require more than just tweaking what we already have.

The basic problem is that we have used up most of the easily accessible energy and mineral resources.  Those that are left require so much energy to extract that they are almost useless.  There have been other times in economic history when humans have had to cope with resource shortages but these were temporary as more resources were waiting to be discovered.  This time the problem is not knowing where the resources are located but the cost/energy required to extract them.

The three basic changes are a basic universal income, the way in which we create money and overcoming the work ethic.  To accomplish anything all three reforms will be needed at the same time.  As there are so many conflicting vested interests this will be an impossibility.  Prove me wrong.  While these appear to be radical ideas, this writer did a degree in conventional economics at the University of British Columbia and has a strong commitment to a market economy.   The radical comes from wanting a market economy when a major feature of the current economy is that competition is restricted by government legislation.

The basis for an income scheme is the agricultural surplus resulting from all the technology which has developed at least since a farmer discovered he could produce more by using a collar on a horse rather than a harness on an ox.  Through the centuries the elite have confiscated most of the surplus with the use of force. Since the industrial revolution psychological tactics such as legal restrictions on competition,patents, copyright and the work ethic have been less messy.  The need for labour to man the empires has allowed workers to claim a share of the surplus.  As robots replace workers it will be interesting to see what happens to the agricultural surplus – and workers.

This writer would like to see the agricultural surplus treated as an inheritance to be shared equally by all the people of the world.  The way to distribute this inheritance is with a basic income scheme.  Some ideas as to how to do this are in the free e-book, Funny Money: Adapting to a Down economy, available from this weblog.

One of the advantages of an income scheme is that individuals would be able to take action on social and environmental issues related to their employment.  Workers would no longer have to work for exploitive employers and people who disagreed with a firm’s social or environmental policies would not have to bite their tongues for the sake of a pay check.

There is an old saying that money is the root of all evil.  When I studied the economics of money and banking I decided it was the lack of money that is the root of all evil.  I now think the way in which we create money is the root of all evil.

In most of the world’s economies money is created when the banks  make loans and because banks are generally required to keep a fraction of their deposits on reserve most loans become additional deposits in the banking system.  This is called fractional reserve money.  It is a problem because loans that have to be written off reduce the amount of money available, with a multiplier, and because interest is charged on the loans.  A sudden reduction in the money supply is the most difficult of all economic crises.   If all the loans outstanding had to be repaid at the same time there would not be enough money to repay the principle and the interest.  We would recognize the problem as a financial crisis.  This is why I titled my book Funny Money.  I encourage you to get a free copy from Smashwords for an explanation of this problem.

Money is useful because it is a tool which facilitates the exchange of goods and services especially when a lot of our exchanges are with strangers.  We have traditionally used gold or other material items as a basis for money.  Some people still talk about the gold standard although fractional reserve money is based on faith rather than gold.

A few small groups around the world have established what they call Local Exchange Trading Systems.  These people base their exchanges on credits.  You get a credit when you sell a good or service to another member and use credits when you purchase something.  I like this system because the credits are a form of money without the problems of fractional reserve and interest.  In my book I propose we adopt a national exchange trading system and combine it with credits from a guaranteed income scheme.  This would be using money as a tool rather than a commodity.  See the book for more details.

Adopting this system would be revolutionary because it would be a transfer of decision making power from bankers to individuals.  Under fractional reserve bankers get to make decisions about what projects get funded and who gets to do them.  A National Exchange Trading System would allow individuals to make these decisions as they decided what to do with their share of the agricultural surplus.  Some of us would use our share to vote for zero economic growth and more leisure activities.

Many people feel guilty if they do not work continuously.  The work ethic and a distribution of the agricultural surplus via employment are the main motivators that keep our economy going. But the truth is that we do not need everyone to work full-time to provide foods, shelter and entertainment to everyone.  Most of the work people do is work for the sake of work and to maintain the empires of the one per cent.

The bushmen of the Kalahari desert in Africa are/were known for not being interested in material things and for not working hard.  But as hunters and gatherers they had no need to store food.  Any day of the year they could go out and collect the food they needed for that day.  When our ancestors moved to agricultural pursuits, they had to store food and this meant working at least at some times of the year.  We have now taken this need to an extreme.

One of the reasons work is so important is that most of us get our self-identity from our employment.  To save our resource base and to preserve the environment we will have to get our self-identity from other activities.  How about a leisure ethic which encourages people to perform operas, write poetry, write economic weblogs or many other useless things.

This blogger keeps by his computer a little statue of the Laughing Buddha to remind him not to take life too seriously.  Most of the time it works but when thinking about the current economic outlook it is hard to laugh.  Most of us think and act in our own short-term interests as opposed to the long-term in interests of our selves or our communities.  So long as that holds true the outlook is for a lot of human suffering.  But  what does it matter.  To quote a famous economist, in the long term we will all be dead.

 

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Guaranteed work or guaranteed income?

As an alternative to a basic income scheme a commentator on Medium is proposing universal guaranteed work.  This writer has put a lot of thought into his proposal and deserves to have it given some consideration.  I have a strong commitment to a guaranteed income scheme and I have some heavy-duty concerns about his work plan.

My first concern is a belief that we do not have enough energy and mineral resources to provide employment for all the people who inhabit this planet.  There are still lots of resources but we have cherry picked the most accessible and those which are left will require lots of inexpensive energy to extract.  Even if the cost of solar energy continues to drop there may not be enough other resources to maintain the economic growth required to provide work for everyone. Topsoil is a major resource which may deteriorate and restrict growth.

The proposal for guaranteed work is probably based on a belief in economic growth and a long tradition that people must “do their share” and work to support themselves.  It may be that some people see a basic income scheme as a way of distributing goods and services rather than as an economic necessity.

Technology has been changing our economy at least since an ancient farmer discovered he could increase his production by using a horse with a collar instead of an ox with harnesses.  This development and all those that  followed allowed fewer people to work the land and more people to do other things such as fight and prey.  (In medieval times there were three classes of people – those who prayed, those who fought and those who worked to support the first two.)  My professor of European economic history spent a lot of time talking about agricultural developments which increased productivity.

Modern technology is an extension of this trend releasing more people to do things other than work to provide food and shelter.  A major question is what is this free time going to be used for.  There are many choices beyond preying and fighting including making more electronic gadgets and performing or listening to music.  Another question is who is going to make the decision about what to do with this time.  I believe individuals should be able to make the decisions for themselves.

My third concern is that a guaranteed work scheme is a continuation of the work ethic which allows a few people to tell the rest of us what to do.  We should consider the agricultural surplus and the benefits of technology an inheritance for all of us rather than a right which can be expropriated by a few.  We should be able to decide for ourselves what we want to do with the free time we have inherited from our ancestors.  That could be drinking beer or creating great works of art.  Who is to say one activity is better than another? We need a leisure ethic rather than a work ethic.

Sadly there are some people who feel they should be able to tell others how to live their lives.  A universal guaranteed work scheme is an open invitation to these people to practice this dark business.

Our civilization has to deal with some serious economic problems.  I fear the work program as proposed would make a lot of those problems even worse.  A guaranteed income program would not be enough to solve all the problems but it would be a start and needs a lot more thought.

 

 

How can we afford a universal basic income?

How can we possibly afford a universal basic income?

This appears to be the strongest argument against an income scheme. It also illustrates one of the basic problems in economic analysis.

When macroeconomic professors stand at the black board they generally draw an x-shaped graph and label one line to represent the real or physical part the economy and the other to represent the financial side. This is an important distinction because if one analyses economic problems only in financial terms the complexities of the financial system get in the way of clearly seeing problems.  Too often economic problems are analyzed in financial terms.

In the case of the universal basic income the question should be are we capable of producing enough goods and services to provide everyone with the desired standard of living.  The answer should determine the level of the basic income.

There are a number of economic issues with which we need to deal:  we have extracted the most easily accessible energy and mineral resources and those left require a lot of energy to get; there are serious problems resulting from the fractional reserve way of creating money; the work ethic is a problem in a high technology world; and there is a need to recognize our economy, what we call capitalism,  is based on legislation which restricts competition and allows some people to make profits they would otherwise not get.

I believe most of these need to dealt with at the same time.  Certainly a UBI should be introduced at the same time as a reform of the financial system. These are complex emotional issues and will be extremely difficult to resolve.

The book Funny Money: Adapting to a Down Economy, by the author of this post discusses these issues. Please have a look at it.

A guaranteed income – another impossible dream

I believe the arguments in favor of a universal income scheme are overwhelming.  The problem is this belief is not shared by everyone.  I would go even further than an income scheme and say there is an urgent need to reform the way in which we create money and the two reforms should be combined.

Our survival and our enjoyment of life depends upon our being able to provide ourselves with food, shelter, clothing and smart phones.  The way in which we do this involves a lot of complex relationships with people we do not know.   As, for the most part,  we do not understand how these relationships work,  any attempt to change them will be a threat and arouse a lot of fierce emotions.  On top of that a lot of people have a vested interest in the current way of exchanging goods and services and will resist change.

It may be impossible to overcome these problems, but is that a good reason to not discuss them and to not try?  With current economic trends it could be that changes will be forced upon us and maybe we should try to influence them rather than just let them happen.

The essay “LETS go to market; Dealing with the economic crisis”  on this weblog deals with a proposal for a guarantee income scheme and how it could be combined with a different way of creating money.  Do have a look at it.

A major question around an income scheme is how much work needs to be done.  Modern technology has reduced the amount of labor needed for survival.  I think we are at the point where a lot of work is just for the sake of working to satisfy the work ethic.  The work ethic allows a lot of people to build empires to fulfill their own ambitions.  The work ethic is unnecessary and makes a lot of people into slaves.

A guaranteed income scheme would be a major transfer of decision-making power to individuals because having money allows people to make decisions.    No longer would people be dependent upon an employer for their total income.  No longer would we be slaves to employers.  We would be able to decide what we want to do with our time.

An income scheme would deal with problems of poverty, inequality and economic inefficiencies.  With an income scheme there would no longer be a case for subsidies to producers and this would remove a lot of price distortions from the economy.  The result would be a more efficient economy.

Value is determined by supply and demand.  As all of us have a limited lifespan time should be the most valuable thing we have.  Therefore we should by trying to use modern technology to give us more time in which to do the things we most enjoy.  Instead it seems modern technology is mostly being used to sell us more smart phones which are used to sell us more junk.  That’s stupid.

Infinite economic growth and the best things in life are free

Please pass the salt.  Here’s an economist, Tim Worstall who writes in The Telegram, arguing that infinite economic growth is possible even though we live on a finite planet with finite resources.

His argument, as I understand it,  is that applying new technology to recycled resources will increase the value of those resources so that GDP can  go up forever.  It’s an argument which a lot of people will want to accept because empires or even livelihoods depend upon continued economic growth.

If we are going to talk about economic growth there are two questions that should be considered.  Is growth necessary or desirable?  Do we need to make changes in how our economy is organized to adjust to the impact of using up the most available of resources?  Some people build empires and amass riches thanks to economic growth.  Others, myself included, are not ambitious in that way  and question the need for economic growth.  I would prefer to do things other than work on the building of somebody else’s empire.  Our agricultural surplus is so great that we have to “work” very little to do our share to support ourselves.  The question is who decides how to use the surplus.  I would like to see our economy organized so that as much as possible each individual could decide how his share is to be used.

The argument is that applying new technology to recycled resources will allow infinite economic growth. The difficulty is that not all resources, especially energy, can be recycled and there is no certainty that there will always be new technology.  There are still tremendous oil reserves in the crust of this planet. However it is not clear how easy it will be to extract those reserves.  How many units of energy will it take to extract 100 units of energy?  If technology can bring the answer down to the point where a barrel of oil sells for $15 to 20,  then we might expect more  old-fashioned economic growth.

Worstall  defines economic growth as an increase in GDP which is the value at market prices of all final goods and services.   In this view the value of an item is determined by its market price which is determined by supply and demand.  I would like to make a distinction between price and value because somethings we value have a low price as their supply is plentiful.  (There’s and old song The Best Things in Life are Free.)  A walk in the forest usually involves only the cost of getting to the forest which depends upon where one lives.    There are lots of things we value which are not captured by GDP.  Some of us might like to see “growth” in these things.  It would be nice if we as individuals could make that decision rather than having an economist tell us what to do.

Economic growth is a complex issue.  There may be problems with the resource base and the most widely used definition excludes a lot of activities which a lot of people value highly.

The current economic crisis is affecting people around the world.  Many people believe that only economic growth will solve our problems.  This blogger figures that to minimize the human suffering resulting from economic problems it may be necessary to reorganize our economy.  Some suggestions are in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

An alien invasion or the consequences of stimulus

With austerity seemingly not working to resolve economic problems and the apparent success of Abenomics and recent announcements that there may be thousands of earth like planets,  it may be time to have a second look at Paul Krugman’s proposal for governments to start preparing for an alien invasion from outer space. On second thought,  the consequences of launching into a major stimulus program may be worse than the slim chance of an invasion.

As there are two sides to the economy, financial and real,  we should look at both of them.

On the real or physical side we need to look at two things – resources and labor reducing technology as the goal of stimulus would be economic growth and full employment.

For there to be economic growth there will need to be an increase in the quantity of goods and services we produce.  The limit on services may not  be clear but regardless of the service economy we all need physical things to survive.    The production of more goods will require more mineral and energy resources and that could be a problem.  There are lots of resources left in the earth’s crust but we have used up the most accessible and those that are left are difficult and require a lot of energy to extract.  That could be a limit on further economic growth.

So what would be the consequences of attempted stimulus on the resource base?  Probably more energy would be required leaving less for other things and probably we would bring forward the timing of a major economic collapse.

Another limit on full employment is labor reducing technology of which we use a lot.  Here I see two questions:  How is the freed up time to be used and who is to make that decision.  Personally I enjoy reading, thinking and writing this weblog and I enjoy wood turning.   I don’t want Paul Krugman telling me and others that we have to spend a lot of time preparing for an alien invasion.   We now have the technology that most people don’t need to spend most of their lives “working”.  I would like to see some sort of universal income scheme which would allow individuals to decide what they want to do with their time.

On the financial side of the economy stimulus means two potential problems – inflation or a financial crash.  A government stimulus program would be trying to increase the production of goods and services.  With limited potential for growth this would put upward pressure on prices.  With all the excess money supply which central banks have been pushing into the economy I wouldn’t want to rule out hyperinflation.

The other potential financial problem is another crash within the banking system.  The way we create money is a Ponzi scheme which has to crash from time to time.  If inflation doesn’t get us a crash will.

I fear that Krugman was only half-joking.  He wants governments to undertake a massive stimulus program and I fear that could bring forward a major economic collapse.

Austerity appears not to be working either and it is causing problems for lots of people, especially the young.  The challenge then is to find a third way and at this point I must refer you to the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

Oh, oh.  Did I just see an armed flying saucer go by my window?

Fossil fuel reserves

An article in this week’s The Economist talks about reserves of fossil fuels and points out existing reserves exceed what can be burned if governments stick to plans for controlling climate change.  It seems many people in the business don’t expect governments to hold the line.

regelatwork_Oil_rigAnother factor which may limit the value of these deposits is the marginal cost of extracting them. As we extract the most easily accessible of resources the cost of extracting the remaining resources increases.  Perhaps we should calculate the costs in terms of energy.  How many units of energy does it take to extract 100 units of energy?  As this figure goes up it is going to reduce the energy available for other economic activity and is certain the have a negative influence on economic growth.

Those who have a religious-like faith in economics will say innovation and technology will save the day and we are bound to return to economic growth.  They could be right, or partially right, but it might be wise be a little skeptical.

The costs of extracting fossil fuel reserves should be considered in determining their value and evaluating their potential contribution to the economy

There are still lots of energy resources in the crust of this planet and the energy companies will probably identify more of them.  What isn’t so clear is that these resources will be available either because of government policy on climate change or the economics of extracting them.

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